Homeowners face tax bump with end of mortgage law

Underwater homeowners trying to get their financial bearings are in for a shock, with the expiration of a 2007 tax break on forgiven mortgage debt set to take effect if Congress doesn’t act.

The Mortgage Forgiveness Debt Relief Act lets homeowners forgo paying taxes on canceled mortgage debt that was used to buy, build or improve a primary residence up to $2 million. The reemergence of the tax could affect 97,262 homeowners in the New York area, according to data from CoreLogic cited by the New York Daily News.

“It’s like taking two steps forward, only to be taking three steps backward,” Jason Boje, a homeowner facing the dilemma, told the Daily News.

The stressor comes as the number of mortgage delinquencies in the U.S. is at its lowest point in five years, and as programs are taking effect to help out homeowners affected by the housing bust.

For example, the U.S. Department of Justice and JPMorgan Chase recently inked a $13 billion settlement over allegedly shoddy mortgages the bank sold in the lead up to the financial downturn; some $2 billion of that money will go to helping reduce the principal of homeowners at risk of falling into foreclosure. Governor Andrew Cuomo is also eyeing regulations that would incentivize lenders to lower mortgage principals. [NYDN] — Julie Strickland